Invest Like the Best with Patrick O'Shaughnessy
· Shyam Sankar
[00:00:00] S1: This is a great question. Their principal asymmetric advantage is long-term planning. They actually can't pivot on a dime. So let's go back to Gulf War I, which we're talking about with John Boyd. They saw the devastating violence we were able to do in basically four days to the fourth largest army in the world. They said, okay, we have to systematically map all of the critical dependencies of America's military technology and invest against it. And they have been doing that since '91. The frog has kind of boiled in some sense. And it's a little bit of an easier game because they're playing a home game, but that's the map they've been on. And it's been a steady journey. And if you look back, they broadcast their intent the whole time. There's no surprises that were there, ever. Our asymmetric advantage is that we're crazy. The AI phenomenon was not in their long-range plan. It wasn't in our long-range plan, but when it happened, our whole economy pivoted on a dime. And even the Chinese models, those are the result of distillation. And so our ability then to be unpredictable, because we ourselves do not know what we're gonna do. That's our key strength. That comes back to the heretics. Where does that unpredictability come from? Because it's not our bureaucracy. Our bureaucracy is incredibly predictable. It's not the steady Eddie managed decline. It's the crazies.
· Patrick O'Shaughnessy
[00:00:00] S0: How do we get more heretics in this part of the American story? Because there's obviously a massive profit and I would argue status motivator in the private sector. All these companies that are popping up with amazing founders, we've invested in a bunch of them. The potential rewards are extremely obvious. The heretics that you described at the start of the conversation, that's definitely not true. You mentioned dying penniless or whatever. How do we create the right set of incentives for more of our most talented people to go be heretics in this part of the American story right now?
· Shyam Sankar
[00:00:00] S1: There's two incentives. One is recognition that we need the heretics. I think Hyman Rickover enjoyed his celebrity for a big period of time, and just being known as the guy who did this is itself a sort of reward. Then the second part of this is definitely financial. One of the arguments I've been making is the cynical view of the defense industrial complex in particular is something like, these are greedy warmongers. Well, they picked the wrong industry then. Because on the greedy side, you should be in tech. You should be in some other business. These are crappy businesses. They have 9% operating margins or something. They're valued at less than two times revenue. So we actually need to make our primes more valuable. That would help us continue to attract the heretics. How do you make the primes more valuable? The facile critique of the primes is somehow they're the problem. The system's the problem. The primes are just downstream of the consequence of the incentives the government gives. And I think the worst incentive is cost plus contracting. Your upside is capitated. You're not supposed to take any risks. The government basically pays for your R&D. So you have no skin in the game. And yeah, you're still able to make a small number of exquisite things, but that system is anti-heresy. You can only do the conventional thing that the government's agreeing that you should do. You think about the Higgins boat. Andrew Higgins built that boat on his own. There was no spec. In fact, that's why the Navy kept rejecting it. It wasn't the Navy's idea. But then 92% of all boats in World War II are the Higgins boat. The heresy is the boat that won the war. How do you create an economic incentive where that's the case? And I think companies like Anduril are pioneering that on the hardware side where it's like, hey, I'm building a product. These are my specs. These are my opinions. I'm absorbing the risk. You should buy it if you like it or not. Part of the reason for profound optimism right now is I would not have started all this advocacy if I thought I was just screaming into the wind. It's like, having done this for 20 years, for the first solid 10 years, we were alone in the darkness. It was SpaceX on the launch side, and us.
· Shyam Sankar, Patrick O'Shaughnessy
And then if you look at the present moment, there are now hundreds of founders who are building in the national interest with a U.S. capital stack – one of our other advantages – of over $100 billion invested in the projects that they're doing that are actually changing how the department thinks about the future. This is the window and the moment for this stuff to happen. Increasingly in conversations that I have in the Pentagon, I hear some of these new entrants are talked about as plan A. It's not plan B, it's not hey we'll see, maybe this will work in the future. It's like no, this is the plan and we'll have to have backups if that doesn't work. That is unrecognizable from the world I started in in 2006. [00:00:00] S0: If you were the president for a day tomorrow, what would be your executive orders? What would be the things that you think could carry the most freight to create some of the change that you want to see?
· Shyam Sankar
[00:00:00] S1: I have narrow ideas. This is a narrow idea, but I would try to blow it up. Okay, you want to bring pharmaceutical production back to the U.S.? If you try to do that for generics, the business case will never work. It's too hard, it's too much of a subsidy. But what you really want is you want to redevelop a skilled workforce that understands how to make drugs again, and you want the production capacity that, in a time of crisis, you could go from making branded drugs to generics. So why don't we manipulate patent length and say look, drug companies, if you make your worldwide supply of your branded drugs here in the U.S., I will extend your patent length such that you recover 2x your capex investment to go do that. That's a simple business case that every pharma company would underwrite in a heartbeat, and it provides the catalyst to go generate that capacity. I think there are a lot of things in the American economy that look like that. If we go back to the story I was saying, between prosperity and freedom, that Chrysler built minivans and missiles, and Ford built satellites until 1990. General Mills, Kodak, you just go down the list. The entire economy looked like that. I think it's a consequence of being the sole superpower and the Pentagon – the old Pentagon in particular – being the last bastion of communism except for Cuba. Every country gave up on communism, including Russia and China, except for Cuba and the Department of Defense. That made it both a bad business, and then seemingly no threat. So you could just be a prosperity company. You'd be a single purpose company that just cared about being a company. I'm not sure that's actually a stable or healthy society or civilization that we have to recognize that we have obligations across freedom and prosperity.
· Patrick O'Shaughnessy
[00:00:00] S0: You mentioned the notion that we are crazy and can pivot and attack opportunity is an amazing part of the U.S. culture. What do you think is the other side of that coin? What are the negative aspects of U.S. culture in your view? And I'm gonna ask the same question zoomed in on Palantir specifically of how to cultivate the culture that you want. Palantir seems to have an incredibly distinctive culture. I'm gonna ask about Shyam bombs and things like this inside the company. But first at the U.S. level, what are the things that you wish were different here about our culture?